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Upholding Arbitration Agreements in Ukraine: A Long Way to Go?

JURIST Guest Columnist Dmytro Vorobey is an LL.M. Candidate at the University of Pittsburgh School of Law, and has interned at the district prosecutor's office and the district court in Novomoskovk, Ukraine. Here Vorobey provides a critique of Ukraine's progress towards implementing consistent international arbitration practices...

In light of a recent changes in Ukrainian law, it seems like the question asked by the title of this article should be answered in the negative. A more modernistic view of legislators and the arbitral community certainly seems to be developing. This is largely due to recent amendments to the Ukrainian Civil Code, which lays out the procedure for recognition and enforcement of foreign arbitral awards. Furthering this new attitude toward arbitration is the publication of the Rules of Assistance available from the International Commercial Arbitration Court (ICAC) at the Ukrainian Chamber of Commerce and Industry in arbitration under the UN Commission on International Trade Law (UNCITRAL) Arbitration Rules [PDF].

However, some decisions by Ukrainian courts still remind us that policy in regard to international arbitration remains unclear. Back in October 2010, the Supreme Court of Ukraine refused to recognize an award because of ambiguities in the wording of the arbitration clause. On the other hand, just several weeks before the Supreme Court's decisions came out, the Regional Commercial Court of Cherkassy upheld an arbitration clause providing for arbitration "at claimant's location." This shows that inconsistencies still remain in Ukraine's treatment of arbitration as an alternate form of dispute resolution.

Even though devoid of any precedential value, the decisions of the Supreme Court are persuasive authority for lower courts that are charged with the mission of enforcing foreign arbitral awards, and are, at least, looked at more often than the decisions of specialized courts. For this reason it may be useful to consider both approaches.

In a proceeding before the Supreme Court of Ukraine, a foreign company (nationality omitted from the record of the Court) appealed a decision of the Court of Appeals upholding the decision of the Shevchenkivsky District Court, setting aside an award rendered by the ICAC and contradicting the well-accepted principal of competence-competence, which holds that international arbitral tribunals have the ability to determine their own competence. The Ukrainian entity (appellee) countered that the arbitration clause on which the tribunal based its own jurisdiction was invalid, and thus, claimed that the decision setting aside the arbitral award should be upheld.

The ill-fated clause 8.2 of the parties' contract provided that, "disagreements arising between the Parties shall be submitted to arbitration in the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Kyiv. The award shall be final and binding upon both parties." The problem here being that the institution is properly named the Chamber of Commerce and Industry of Ukraine, not of Kyiv.

It should be noted that, while there are other foreign arbitral institutions that can administer arbitrations seated in Ukraine, the Ukrainian International Commercial Arbitration Act (UICAA) only establishes two permanent arbitral institutions, the ICAC and the Maritime Arbitration Commission, both part of the Chamber of Commerce and Industry of Ukraine, located in Kyiv, and the powers and legal status of these institutions are set forth in appendices to the UICAA.

Nevertheless, the Court concluded that the award was invalid pursuant to Article 34 of the UICAA, as it provides that an arbitral award may be set aside, inter alia, when the award was made regarding a dispute not contemplated by or not falling within the terms of the submission to arbitration. The Court apparently found that the dispute concerned performance under the contract and not the interpretation thereof. According to the Court, the arbitral tribunal exceeded its competence by validating an arbitration clause that contained a reference to a non-existent arbitral institution, and thereby invalidated its decision interpreting the parties' contract. The Court, in contravention of the well-accepted doctrine of competence-competence, reasoned that the arbitral tribunal exceeded its mandate since the parties did not expressly grant it the authority to interpret the provisions of their contract. Interestingly enough, the Court mentioned appellee's objections against the jurisdiction of the arbitral tribunal. Despite these objections the tribunal found itself competent to rule on the merits of the case.

The core of the Court's reasoning was based partly on the fact that the parties have chosen Ukrainian law to govern their contract. The Court cited to provisions of the Ukrainian Civil Code, in particular Article 213(3), stating that, "the legal deeds shall be interpreted ... in accordance with the intentions of the parties." Nevertheless, the Court, concluded that the intent of the parties was not manifested clearly enough to give effect to the parties agreement.

Another decision by the Cherkassy Regional Commercial Court represents a different side of the spectrum. These proceedings concerned a suit for breach of a sales contract brought by a Russian entity located in Moscow against a Ukrainian company. A dispute resolution clause inserted in the contract provided as follows: "in the case that parties fail to reach an agreement, any disagreements, claims or lawsuits shall be settled in the International Arbitration Court at the place of Claimant's location. The law applicable to the dispute shall be the law of the aggrieved party including bilateral agreements concluded between Ukraine and the Russian Federation." Claimant filed a request for arbitration with the International Commercial Arbitration Court of the Russian Federation at the Chamber of Commerce and Industry of the Russian Federation. The court subsequently refused to declare itself competent to decide the dispute based on the fact that the arbitration agreement did not contain the word "commercial" and omitted the phrase "at the Chamber of Commerce and Industry of the Russian Federation."

In a subsequent proceeding before the Cherkassy Regional Commercial Court, the Russian claimant submitted that the parties in fact intended the dispute to be decided by a different arbitral institution located in St. Petersburg, Russia. The claimant expressly referred to the rules of that institution stating that the parties may validly submit a dispute for consideration by referencing it as the International Commercial Arbitration Court, or by stating its name and address in their arbitration clause. Having accepted claimant's argument the court then proceeded to interpret the phrase "at Claimant's location." It concluded that the phrase should be interpreted in a broader sense meaning the reference to claimant's country as a whole, as opposed to the geographic region or a specific location where claimant has its place of incorporation unless the agreement provides an address where the claimant is located. The court finally concluded, quite broadly and beyond the text of the agreement, that any dispute between the parties could be submitted to any arbitral institution within the Russian Federation. Here the court made a determinative interpretation of the parties' agreement, albeit without any express permission.

The decision of the Cherkassy court seems to mitigate, at least in part, the hostile attitude of many Ukrainian courts towards arbitration agreements. The court seems to have intuitively made a decision that gave an absolute supremacy to the intent of the parties, despite ambiguities in the wording of the arbitration clause. These cases provide a vivid example of both inconsistency and a positive change. Although the notion that international arbitration agreements should be construed with a view to preserving their validity, in favorem validitatis, has not yet gained a firm foothold in Ukraine, there is still hope of transforming the nation's approach to dealing with arbitration from piecemeal legislation to a consistent policy in favor of international arbitration.

Dmytro Vorobey received his bachelor's degree in law from Yaroslav the Wise National Law Academy in Kharkiv, Ukraine, in 2011. Vorobey was also selected as the Ukrainian delegate to the European Youth Parliament in 2009, and was a member of the 2009-2010 Yaroslav team at the Vis International Commercial Arbitration Moot. He is a recipient of the Fulbright Fellowship administered by the Institute of International Education.

Suggested citation: Dmytro Vorobey, Upholding Arbitration Agreements in Ukraine: A Long Way to Go?, JURIST - Dateline, Apr. 13, 2012, http://jurist.org/dateline/2012/04/dmitrii-vorobey-ukraine-arbitration.php.

This article was prepared for publication by Emily Osgood, an assistant editor for JURIST's student commentary service. Please direct any questions or comments to her at studentcommentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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